The Reserve Bank of India’s (RBI) updated guidelines for Priority Sector Lending (PSL) have helped ease credit challenges in the renewable energy sector, according to a report by the State Bank of India (SBI).
The report noted that the RBI’s clear recognition and prioritization of renewable energy under PSL regulations have resulted in a larger share of non-conventional energy (NCE) credit within the overall energy credit portfolio.
Using a dummy variable linear regression model for the period FY10-24, the report suggests that the RBI’s policy changes have stimulated greater credit flow to non-conventional energy projects. Over time, the central bank has broadened the scope of PSL norms to encourage lending for clean energy initiatives.
The report emphasized, “The explicit prioritization of renewable energy within the PSL framework has eased credit constraints, leading to a higher share of non-conventional energy credit in the overall energy credit.”
On July 1, 2015, the RBI set a loan limit of up to Rs 15 crore for projects involving solar power, biomass-based power, micro-hydel plants, and other non-conventional energy-related public utilities, such as street lighting systems and village electrification.
In September 2020, the loan cap was raised to Rs 30 crore per borrower, demonstrating stronger support for the sector. In the latest revision, the RBI increased this limit to Rs 35 crore per borrower, marking a 17% increase. However, the loan ceiling for individual households remains capped at Rs 10 lakh.
While the Rs 5 crore increase in the loan limit may seem modest compared to the 2020 change, the report suggests that such incremental policy adjustments will significantly impact the growth of the renewable energy sector. By supporting clean energy financing through PSL, these measures align with India’s broader environmental ambitions.
The report concluded, “These small policy interventions will go a long way in helping the NCE sector achieve its dual objective of promoting clean energy.”
India has set ambitious clean energy goals, including reaching 500 GW of non-fossil fuel-based installed capacity by 2030 and achieving Net Zero emissions by 2070.
The RBI’s support via PSL norms is expected to play a key role in helping India meet these goals by facilitating easier access to credit for green energy projects.
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